Airbus SAS (EAD), the world’s second-biggest planemaker, won orders for $4.2 billion of single-aisle planes from two Chinese startups amid rising travel and the government’s deregulation of the nation’s civil aviation sector.
Qingdao Airlines, a newly established private carrier, agreed to buy 23 A320s in a deal valued at $2.26 billion, based on Airbus list prices. Zhejiang Loong Airlines, recently approved by the regulator, signed an initial agreement for 20 A320s, valued at $1.91 billion. Airlines usually get discounts from list prices.
The deals are a boost for Toulouse, France-based Airbus as the planemaker expects to deliver more than 100 aircraft this year to customers in China, the world’s second-largest economy. Airbus, which lost the global sales lead to Boeing Co. last year, has predicted airlines globally will buy planes valued at $4.4 trillion in the next two decades, driven by demand in India and China and global growth among low-fare carriers.
“It seems China is encouraging local investment into the sector as new airlines can help boost domestic consumption and economy,” said Kelvin Lau, a Hong Kong-based analyst at Daiwa Securities Group Inc. “In the short term, competition on certain routes would become fiercer and the prolonged problems of airspace congestion and pilot shortage may get worse.”
New players in the long term are unlikely to be a real threat for the dominant airlines, that are owned by the central government, he said.
About 36 percent of Airbus’s long-term sales forecast will go to the Asia-Pacific region, with Europe taking 20 percent of planes ahead of North America, which will be home to 19 percent of forecast deliveries. The highest growth rate will be in India where domestic air travel is set to advance almost 10 percent, with China and Brazil due to see increases of about 7 percent.
Qingdao Airlines’ order includes 18 A320neos, a re-engined version of the single-aisle jet, according to an e-mailed statement from Airbus yesterday. Zhejiang Loong’s purchase will have nine neos, the planemaker said in a separate statement.
“I question if China needs more airlines,” said Will Horton, an analyst at CAPA Centre for Aviation. “Airlines generate economic activity even if they are unprofitable. China is no different from the rest of the world in that governments see airlines as a source of pride.”
Airbus also won a $2.6 billion order from BOC Aviation Ltd., the leasing unit of Bank of China Ltd. The Singapore-based lessor is expanding as economic growth in Malaysia, Indonesia and other Southeast Asian nations is boosting travel across the region. That’s prompted Singapore Airlines Ltd. (SIA), AirAsia Bhd. (AIRA) and PT Lion Mentari Airlines to also place orders.
VietJet Aviation Joint Stock Co., Vietnam’s only privately owned carrier, signed an agreement yesterday to buy as many as 92 planes from Airbus, including 42 re-engined A320neos, 14 current-model A320s, six A321s and 30 purchase rights.
China may need 5,300 new planes in the 20 years through 2032, Commercial Aircraft Corp. of China said yesterday. The Shanghai-based company is making China’s first large passenger plane in a bid to challenge Boeing and Airbus.
Qingdao Air, 20 percent owned by a unit of Air China Ltd. (601111), won preliminary approval to set up an airline business in May, according to the aviation regulator’s website.
Delivery of the Qingdao Air’s planes will start in 2016 and it will begin services next year with leased A320 aircraft, according to the statement. Zhejiang Loong, based in Hangzhou in eastern China’s Zhejiang province, plans to start business this year.
Qingdao’s approval came after Li Jiaxiang, the head of Civil Aviation Administration of China, vowed in May to reduce regulatory procedures for companies.
Airbus yesterday also introduced a lightweight version of twin-aisle plane A330-300 to help Chinese customers cope with airspace congestion and shortage of pilots. The shorter-range model can be delivered by the end of 2015 or early 2016, Eric Chen, Airbus head in China, told reporters in Beijing.
Air China, the country’s biggest carrier by market value, and China Southern Airlines Co., Asia’s largest by traffic, both reported first-half profit gains helped by the yuan’s appreciation amid increasing competition with bullet trains.
The air regulator in May also gave preliminary approval for Ruili Airlines, owned by private firm Yunnan Jingcheng Group. The new airline, based in Yunnan province, agreed to buy 18 planes from Boeing and Air Berlin in August, according to the official Xinhua News Agency.
To contact the editor responsible for this story: Anand Krishnamoorthy at email@example.com